SINGAPORE'S first exchange-backed 'dark pool' trading platform, which started with much fanfare in 2009, is ending with something of a whimper.
The tie-up between the Singapore Exchange (SGX) and Nomura's electronic trading platform provider, Chi-X, is shutting down mainly because it did not catch on here in a big way.
Dark pools are private trading platforms used by large investors where bid and offer prices are not displayed.
Chi-East, billed as the first stock exchange-backed dark pool in Asia, had been set up with the objective of becoming a trading platform to match large 'buy' and 'sell' orders by institutional investors for selected stocks listed in Australia, Hong Kong, Japan and Singapore.
A dark pool helps the big boys to move big blocks of shares without attracting the attention it would on a public exchange. They would rather not alert other traders, and risk the share price moving against them.
Despite the hype surrounding such trading in developed markets such as Wall Street and London, where they match billions of dollars in daily trades, dark pools do not appear to have taken off in a big way in Asia.
Hints that all was not well with Chi-East came with the disclosure from SGX chief executive Magnus Bocker in the bourse operator's third-quarter results briefing last month that the joint venture had not taken off, and that the SGX was still evaluating its options.
That culminated in an SGX statement yesterday that Chi-East plans to unwind its operations in the next two weeks.
Explaining the rationale for shutting down Chi-East's operations, the SGX said: 'The launch of Chi-East directly corresponded with a period of slower market volumes globally.
'Although trading volumes were improving, they were still far short of expectations. Due to commercial considerations and expectations of continued relatively weak business prospects, the decision was taken by the board of Chi-East to cease the operations of Chi-East.'
Analysts contacted by The Straits Times were not surprised by the SGX's decision.
CIMB's Mr Kenneth Ng said: 'Chi-East has not been a big contributor to SGX's bottom line so far. Asian trading volumes have been falling and it is difficult for dark pool operators to establish a foothold in Asia, as their forte lies in being able to attract big blocks of shares to trade.'
He said the platform had been a defensive move by the SGX when it was confronted by the emergence of alternative trading platforms such as dark pools in the United States and Europe, which had threatened to take off here too.
But that threat has not materialised, and Chi-East has not taken off in the manner that its owners had anticipated.
In its brief life, Chi-East had attracted an impressive list of participants such as Instinet, Deutsche Bank, Morgan Stanley, Nomura and UBS, which successfully matched trades.
In late 2010, when the SGX was then making its ultimately abortive takeover bid for ASX, its Australian counterpart, an Australian regulator asked if the merger would have an impact on alternative trading platform providers such as Chi-East.